Tuesday, December 11, 2007

In January 1998, when the Ahmedabad Municipal Corporation issued its own municipal bonds without a state government guarantee, many frowned.The Rs100 crore issue, to support the water supply and sewerage components of a Rs589 crore infrastructure investment programme, was a success. The results encouraged many other municipal corporations to float bonds with investment grade ratings and investors, both private and public, grabbed the opportunity. Despite the good performance, the municipal bond market is only 0.1% of the total corporate bonds traded in India.In the US, where such bonds have been in the market for the past 120 years, municipal bonds constitute about 12% of the overall corporate bond market in the country.In the last six years, municipalities in India issued 13 bonds amounting to Rs733 crore. In the US, the market of such bonds is $2.5 trillion (Rs98.5 trillion).An international conference on developing India’s municipal bond market in Mumbai on Monday emphasized the need for encouraging investors to consider municipal bonds as an attractive alternative to other financial instruments. (snip)